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What is Square? An Explanation of Twitter Founder Jack Dorsey's New Venture

As we reported earlier this week, Twitter founder and STL native Jack Dorsey finally revealed his next venture, a portable iPhone-based payment system called Square.

Honestly it wasn't a very well-kept secret. There have been rumors about this and even photos of the prototype floating around for a while. But that is not to say that there wasn't any news in this week's announcement. The details of Square, giving the ability to anyone to accept a credit card payment anywhere without a merchant account and with something as ubiquitous as a mobile phone, is very interesting and potentially game-changing for a lot of freelancers and small businesses.

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Here is how Square works: You sign up for an account that is linked to your bank account, similar to how Paypal works. You download the app to your smart phone and then receive a little square plastic device used to swipe credit cards that plugs into the headphone jack on your phone. Voilà! You can now accept credit cars payments from anyone.

Right now the device and the software work with the iPhone and iPod Touch but eventually it will work with any smart phone with an audio jack. The cost for signing up and for the credit-card swiping device? Free. Square will recoup the costs and make their profits on fees (which haven't been announced yet) for processing payments.

Now the basic process isn't new. Any business can get a credit card merchant account, and mobile credit card processing devices aren't unheard of, but the costs are prohibitive to anyone other than a business that can justify the expense. Just a mobile credit card payment device, for instance, can cost nearly a grand by itself. What Square does is it allows any individual to accept credit card payments with very little cost or a lengthy business application process.

Want to buy an expensive item on Craigslist but feel nervous about heading to an unfamiliar neighborhood with a wad of cash? With Square the seller can now accept your credit or debit card about as easily as accepting cash. This seems like this could be a very useful item not just for small-time artists and crafts people who infrequently sell big ticket items, but for anyone who would like to accept a credit card payment only occasionally.

Square says the process is secure, no credit card data is stored on the phone and your photo is attached to your Square account so the transaction participants know that the party they are dealing with are who they say they are. Also receipts can be sent via email or SMS to the buyers phone.

Here is a video of Jack Dorsey explaining Square and demonstrating how it works:

Square is in use in limited beta at the moment at a few San Francisco locations, but the fact that they are making announcements seems to be a good indicator that a bigger rollout of the service is due soon, some reports say early next year.